The Economy of Tomorrow

1

The Economy of Tomorrow

ECONOMY OF TOMORROW

1. Why is a new development path necessary?

New economic, ecological, social challenges The end of successful development models

2. How could a sustainable development model look like?The EoT model for socially just, sustainable and green dynamic growth

3. How to create the political will for a shift onto a new development path?

Weak progressive actors/ flawed governance Building political leverage for the struggle against the status quo

Contact: Marc Saxer, [email protected]

2


ECONOMY OF TOMORROW


New Challenges

3

CHALLENGES: The Great Crisis of the West ECONOMY OF TOMORROW

Crisis of casino capitalism

Euro Crisis/ Sovereign debt cisis

Crisis of shareholder capitalism

Flawed neoclassical theory of efficient markets

Limits to extractive growth

Failure of neoliberalism

Metaphysical Black HoleContact: Marc Saxer, [email protected]

The crisis of the nation state

Crisis of representative democracy

Virtual growth and crises in the West (Example US)

ECONOMY OF TOMORROW


4

Fed raises interest rates to squeeze out Inflation

Clinton cuts deficit spending

Fed buys foreign debt

ModerateInflation

State debt

Private debt

Mass unemployment

Runaway inflation

Public debt crisis

Lack of consumptiondemand

Over -leveraging

Subprime/financial crisis

1973 1981 2001 20081993

Nixon abandons Gold Standard/ End of Bretton Woods

Quantitative easing

The perpetual crises of virtual capitalism ECONOMY OF TOMORROW


5

Problem

Quick fixInjection of virtual resources

Problem

GLOBAL CHALLENGE: Financial capitalism is unstable

NEO- LIBERAL

IDEOLOGY

(Financial)

Market

Liberalization

Downsizing

the State

Supply Side

Economics

Misallocation

of Capital

Weak Risk

Management

Wrong Incentive

Structures

Pro-Cyclical Policies

Income Inequality

CRISES

Export Driven

Demand Speculative

Bubbles

Excessive Leverage

Lack of Investment

in Productivity

and Innovation

Large Currency Reserves

Lack of Income-

Driven Consumption

Instability

Instability of

Financial Capitalism

Debt Driven

Consumption

LACK OF

AGGREGATE DEMAND

Cuts in

Public GoodsAusterity

ImbalancesPolicy

responses

Polic

y re

spon

ses

Market

ConcentrationRegulation

Blocked

All modern institutions– state, market and democracy– are based on the Enlightenment Ideal of Rational Man

ECONOMY OF TOMORROW


“Rationality allows progress to a better future”“The emergence of Man

from his self-imposed

chains”

Metaphysical Roots of modern Institutions are flawed

Good Governance

Efficient Markets State BureaucracyRational Being

Homo economicusautonomous decision-

maker

universally informed rational

choice

Representative Democracy

Planning, Future

scenarios Scientific Progress

maximises interest Well informed

voter

Incremental optimization

Common Good

Social contract

Technocracy

The situation in Asia is different, but challenges are converging

ECONOMY OF TOMORROW


WEST

ASIA

converging trajectories

9

Additional CHALLENGES for developing/ emerging economies

ECONOMY OF TOMORROW


Industrialization

Post-Industrial Economy

Extractive Growth :- Exploitation of natural resources- Exploitation of labor (rural => urban productivity)

Moving up the value chain- high-tech industries- Services

Japan, Korea, Singapore, Korea, Hong Kong

India

Thailand Malaysia

Indonesia Vietnam BangladeshPakistan

10

The East Asian development model of the past decades

Industrialization

Export Low Wage

ECONOMY OF TOMORROW


The end of the East Asian development path

Industrialization

Export Low Wage

Third Industrial Revolution/New global division of labor

Finite Resources/ Energy security

Climate Change/ Natural Disasters

Influx of “hot money”/

Currency volatility

China’s Bubbles

Japanese Tsunami

Vulnerabilityto external

shocks

LoomingGlobal Recession= Lack of external

demandMiddle Income Trap

=Need to boost

productivity

Income Disparity

= Social Divideand Political

Conflict

AEC: Low Wage competition

Financial Crisis

ECONOMY OF TOMORROW


Extractive growth: Infinitve growth in a finite world?

ECONOMY OF TOMORROW


ecological limitseconomic limits

politi

cal l

imits

social limits

fiscal

fiscal limits

13


ECONOMY OF TOMORROW


Economic Solutions

14

The Economy of Tomorrow Development Model ECONOMY OF TOMORROW


INCL

USI

VEN

ESS

Macro- Public Long-term RestructuringEconomic Goods Strategies Guidance

Balanced Stable Accounts Financial

Markets

Productivity Innovation

Dynamic Supply

Human Resource TechnologicalCapital Efficiency Innovation

Competitiveness

Inclusive IncomeInstitutions Equality

Consumer Government Investment NetSpending Spending Exports

Steady Demand

STABILITY

BALA

NCE

DYNAMISM

15

The Economy of Tomorrow Growth Drivers

InclusivenessStability

and Balance

Innovation

ECONOMY OF TOMORROW


What strategic aims for the state/ private sector?

Green Innovation

Resource efficiency

Productivity

Global trade balances

Stable financial markets

Fiscal sustainability

Use of all talent

Fair Income

Stable natural environment

ECONOMY OF TOMORROW


Green Dynamic Growth

Sustainable Growth

Socially Just Growth

Stable social environment

Investment in Renewable Energies

17


ECONOMY OF TOMORROW


Political Solutions

18

If we know what should be done…

… why is it then not being happening?

ECONOMY OF TOMORROW

„Populism“ debate shows that it is impossible to talk

about economic development without politics.

“Change” is not the automatic result of facts and figures.

„Change“ can only be the outcome of a political struggle.


19

Status quo Coalition

Socially Just, Sustainable and Green Dynamic Development Model

Traditional Development model

Good Society

with

full capabilities for all

Exclusive Society with privileges for the elites

Progressive Change Coalition

Rainbow Coalition

Shifting the development path can only be the result of a political struggle

ECONOMY OF TOMORROW


EoT Strategy: Compass, Coalition, Communication ECONOMY OF TOMORROW

Contact: Marc Saxer, [email protected] 20

21

Economic problems are not primarily economic, but political problems

ECONOMY OF TOMORROW

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.

John Maynard Keynes, The General Theory of Employment, Interest and Money (1935)


Politics is less about solutions but about the definition of the problem

ECONOMY OF TOMORROW


Facts

Financial Crisis Bank Bailouts Recession Collapsing Tax

Revenue

Sovereign Debt at the periphery exploded because of bailouts and devaluation at the center

Discourse 1

Discourse 2

Sovereign Debt exploded due to oversized social welfare costs and state mismanagement

Regulate (financial) markets

slash (welfare) state

Definition of the problem … determines the political outcome

Policy

STRATEGY: Channeling the political process

ECONOMY OF TOMORROW

Method:

Leveling the political playing field

by discourse steering

Method:

Development Model

gives orientation and

guidance

(compass )

Normative Vision:

Good Society with Full Capabilities for All

Method:

Building rainbow coalitionsto create political leverage

Contact: Marc Saxer, [email protected] 23

24

EoT serves as a compass and benchmarkECONOMY OF TOMORROW


GROWTH ENGINES

STRATEGIC AIMS

Socially

Just

Growth

Sustainable

Growth

Green

Dynamic

Growth

GOODSOCIETY

withFULL

CAPABILITIESFOR ALL

¨ Collective Bargaining¨ Minimum Wages/Wage Policy¨ Short Term Employment¨ Vocational Training¨ Lifelong Learning Programs¨ Decent Work

¨Fair Income For All(consumption demand)

¨ Include all Talent

(innovation & labor productivity)

¨ Financial Market Regulation

¨ International Monetary Regime

¨ Capital Controls¨ Administrative Capacity (Oversight and Control)

¨ Curbing of speculation

¨ Anti-cyclical macro-economic guidance

¨ Market introduction schemes

¨ Standard Setting

¨ Emission Trading

¨ R&D in (green) technologies

¨ Setting Incentives for

Productivity and Innovation

¨ Long-term investment & management strategies

¨ De-Coupling

¨ (Green) Innovation

¨ “Greening the Old Economy”

(resource efficiency)

GOVERNANCE TOOLS

To Achieve To Fire Up To drive GROWTH COMPASS

To Produce

NORMATIVE VISION

¨ Income Equality ¨ Inclusive Institutions ¨ Public Goods

(Education, Health, Social Security)

¨ Stable financial markets (capital productivity) ¨ Balanced Trade (balanced current accounts) ¨ Balanced Budgets (fiscal sustainability) ¨Stable natural and social

environment

Documents

The Economy of Tomorrow